Metals price surge continues from reduced supply

By Tom Stundza -- Purchasing, 5/7/2008 10:11:00 AM

Drought-triggered curtailments in power generation in Chile, South Africa, China and elsewhere mean the world prices of aluminum, copper, gold, cobalt and platinum will keep climbing as the lights go out in some of the world's biggest mines, according to analysts quoted by Bloomberg.

One of the mavens, Michael Lewis, the London-based global head of commodities research for Deutsche Bank, says: “There will be a sustained level of risk from power shortages in the commodities markets (so) we are pricing bigger supply losses as a result.” Another, Francisco Blanch, the London-based global head of commodities research at Merrill Lynch & Co., adds that “there just hasn't been enough planning to accommodate the growth of Asia's economies. We need to go back to the drawing board and boost investments in power infrastructure. And if this doesn't happen, we're going to see even more brownouts.”

There have been power cuts in New Zealand and South Africa, reducing production of platinum, by Rio Tinto Group and Anglo Platinum, and in the Congo, cutting output by several mining firms of cobalt used in batteries and jet engines. Meanwhile, Freeport-McMoRan Copper & Gold, the world's biggest publicly traded copper producer; Vale, the largest in iron ore, and gold producer Newmont Mining all say power shortages threaten to reduce future production.
Upshot: Nonferrous and precious metals are headed for a seventh straight year of price increases even as the worst U.S. housing slump reduced consumption in the world's biggest economy. Global purchasing growth and speculative investments have bolstered metals prices so that aluminum has increased 21% since the end of December, copper has climbed 26% and platinum, used in jewelry and car parts, has risen by 25%.